Venezuela's "badly broken" oil sector needs outside help

HOUSTON (Bloomberg) -- Venezuela’s opposition leader is rolling out the welcome mat to foreign investors who want a piece of the world’s largest oil reserves.

In a major break from the policies of President Nicolas Maduro and his late predecessor Hugo Chavez, Venezuelan opposition chief Juan Guaido wants to allow foreign crude explorers to drill without partnering with the national oil company, a top adviser said at IHS Markit’s CERAWeek conference on Tuesday.

Under Chavez, seizures of foreign assets chased companies such as Exxon Mobil Corp. and ConocoPhillips out of the country and saddled the government with billions of dollars in reparation obligations. As the nation spiraled into economic, social and political chaos, Venezuela’s oil fields and infrastructure were neglected and starved of cash, leading to ruinous decline.

In an emotionally-charged panel discussion, Venezuelan Ambassador Carlos Vecchio’s anti-Maduro remarks were interrupted by applause half a dozen times. At certain moments, Vecchio and Luisa Palacios, chairwoman of state-controlled Citgo Petroleum Corp., appeared close to tears. The large banquet hall in downtown Houston hotel was standing-room only.

“We need to open up the oil industry to private investment without the participation of the national oil company,” Ricardo Hausmann told the conference.

Diaspora

Government-owned Petroleos de Venezuela SA is an “obstacle” to recovery in the oil sector, he added. Foreign operators like Chevron Corp. that continued working in the country despite Chavez’s seizures would be grandfathered into the new system and not punished for cooperating with the current regime, Hausmann said.

The Venezuelan diaspora -- and its large contingent of skilled oil engineers and technicians -- will be “quite important” to rebuilding the country, Vecchio said.

“There hasn’t been investment for a long period of time,” Schlumberger Ltd. Executive V.P. Ashok Belani said at the conference. Things in Venezuela are “badly broken.”

Even as Venezuelan oil production free-falls, thousands of wells have had to be shut off because there aren’t enough tanks for storage, Belani said in an interview. Turning those wells back on will be challenging and expensive because many will have to be redrilled, he said.

Recent nationwide blackouts aggravated the output decline and probably pushed Venezuela crude production to about 600,000 bpd. This for an industry that was pumping 2 million a recently as two years ago.

Resurrecting Venezuela’s oil industry also will be complicated by the rise of relatively cheap shale exploration in North America and Argentina, and huge crude bonanzas in places like Guyana and Brazil.